Maximum DTI (Debt To Income) ratio to qualify under a Non-QM program
Maximum DTI (Debt to Income) Ratio to Qualify Under a Non-QM Program
Non-QM DTI vs. Qualified Mortgage (QM) DTI
The DTI ratio is a key determinant of loan affordability, calculated by comparing a borrower’s total monthly debt against their gross monthly income.
- QM Limitation: For standard Qualified Mortgages (QM), the borrower’s DTI ratio must be 43% or less.
- Non-QM Flexibility: Non-QM loans offer DTI flexibility. A primary reason Non-QM loans did not meet QM standards in 2024 was due to DTI ratios exceeding 43% (accounting for 26% of Non-QM loans). While QM sets a general DTI target of 43%, Non-QM programs typically allow for a higher limit, often capping the DTI at 50%.
The average DTI for Non-QM loans (38%) is slightly higher than for QM loans (36%), but Non-QM loans have shown historically low delinquency rates, demonstrating that higher DTI does not necessarily equate to excessive risk for creditworthy borrowers.
Standard Maximum DTI Ratios by Non-QM Program Type
Most Non-QM programs set their maximum DTI at 50% for primary income documentation types, with special exceptions allowing for even higher ratios under specific circumstances.
- Programs Capped at 50% DTI
The maximum DTI ratio for numerous Non-QM products, including various Full Documentation (Full Doc) and Alternative Documentation (Alt Doc) types, is 50%. There are generally no exceptions permitted for DTI ratios exceeding 50% in the our Non-QM Connect program.
This 50% maximum DTI applies across several program categories:- Full Documentation (Full Doc) / Expanded (Alt Doc): The maximum DTI is 50% for many loan amounts in the Advantage Standard/Expanded series. The our Prime Non-QM series for ITIN borrowers also has a maximum DTI of 50%.
- Horizon Non-QM Standard/Expanded: The maximum DTI requirement is 50%.
- Sharp Premium: This program allows a maximum DTI of 50%.
- AUS Programs (DU/LPA): For our Edge Elite AUS and Edge Standard AUS programs, the DTI is calculated per AUS findings, with a maximum limit of 50%.
- Non-Occupant Co-Borrowers: When involving Non-Occupant Co-Borrowers on a Primary Residence only, the Max Total DTI is 50%. However, on the our Non-QM Advantage series using the bank statement program, the maximum DTI is 60% for the occupying borrower when true blended ratios are allowed.
- Higher DTI Ratios (Up to 55% or 60%)
Certain Non-QM products are designed specifically to accommodate DTIs greater than 50%, provided the borrower meets strict compensating factor requirements.Program/Scenario
Maximum DTI Allowed
Required Compensating Factors (Examples)
FNBA Non-QM Loans (General)
Up to 60%
Designed for borrowers with irregular income or existing debt.
Sharp Expanded Program
Up to 55%
Requires a minimum 700 FICO score, Maximum 80% LTV/CLTV, Primary residence only (no First-Time Homebuyers), and 1.5x minimum residual income.
Horizon Non-QM Standard/Expanded (40 Yr Fixed)
Up to 55%
If the loan is a 40-year fixed term, the borrower must qualify with a DTI of below 50% calculated using the 40-year amortization payment, AND a DTI of below 55% calculated using the payment under a 30-year amortization.
Horizon Non-QM Standard/Expanded (>50% DTI)
Up to 55%
Requires minimum FICO 680, Max 80% LTV, 0x30x12 housing history, and a minimum monthly residual income of $3,500. Interest-only and 40-year terms are not permitted at this level.
Edge Elite and Edge Standard
Up to 55%
Requires 9 months reserves, Min 720 FICO, Max $1.5M loan amount, Max 80% LTV/CLTV on primary residences only, and no Interest Only or 40-year term.
- Supplemental Income Restrictions
When asset utilization is used as a supplemental income source (meaning other sources are also relied upon), the maximum DTI may be lower than the standard 50% limit:- Asset Utilization as Supplemental Income (Edge Series): When asset utilization is used to supplement other income, the maximum DTI is limited to 45%.Ou
Programs Where DTI is Not Calculated
In certain Non-QM programs designed for specific types of non-occupant borrowers, the Debt to Income ratio is generally disregarded because qualification relies entirely on the asset’s performance.
- DSCR (Debt Service Coverage Ratio) Loans: DTI is not developed or calculated for the DSCR product. Qualification for Investor Cash Flow (DSCR) loans is determined solely based on the property’s cash flow (Gross Rents / PITIA).
- Asset Qualifier Loans: DTI is not developed for Asset Qualifier products. Instead of DTI, the borrower must meet a minimum Residual Income threshold (e.g., $1,300 monthly).
Debt Calculation Methodology
For DTI-calculating Non-QM loans, the expense side of the ratio includes not only current debt obligations, alimony, and child support, but also includes specific rules for mortgage payments:
- Interest-Only (IO) Qualification: For non-DSCR loans (Full Doc, Alt Doc), the DTI calculation for IO loans must use the fully amortized payment—not the lower IO payment—to ensure the borrower can afford the mortgage once the IO period ends. For a 40-year fixed loan with a 10-year IO period, the DTI is calculated based on the 30-year amortizing payment.
- 40-Year Fixed Qualification: For the 40-year fixed term (non-IO), the borrower must qualify with a DTI below 50% using the 40-year amortization, and DTI below 55% using the 30-year amortization.
- Installment Debt: Installment debts with more than 10 monthly payments remaining must be included in the DTI. They can be paid down to 10 or fewer remaining payments to exclude them from the DTI ratio.
- Student Loans: Student loan payments must be included in the DTI regardless of deferment or repayment status. If the payment is zero due to an income-driven plan, student loan documentation can be obtained to verify the actual monthly payment is $0. If the payment is deferred or unknown, 1% of the outstanding balance or a fully amortized payment is used.
FAQ's
When Asset Utilization is used as a supplemental income source, the maximum DTI is often restricted to 45%.
Non-QM loans offer flexibility to creditworthy borrowers whose financial structure (such as high debt) doesn’t fit the rigid QM model. Lenders typically offset the increased risk of a higher DTI by requiring higher credit scores and lower Loan-to-Value (LTV) ratios.
Non-QM programs utilizing an AUS (like Fannie Mae DU or Freddie Mac LPA) typically rely on the AUS findings but enforce a maximum DTI overlay, often capped at 50% DTI.
Yes. The Horizon Elite Jumbo program, designed for ultra-jumbo financing, specifies a maximum DTI of 38%.
For non-DSCR IO loans, the DTI calculation must use the fully amortizing principal and interest payment (PITIA) over the remaining amortization period (e.g., a 40-year term loan qualifies based on a 30-year amortizing payment). The lower IO payment cannot be used to qualify.
For the Asset Qualifier product, instead of DTI, the borrower must meet a minimum monthly Residual Income requirement (e.g., $1,300 for the Connect Asset Qualifier product).
DTI is not developed for Debt Service Coverage Ratio (DSCR) loans because qualification is based solely on the property’s cash flow. DTI is also not developed for Asset Qualifier products.
Yes. Some specialized Non-QM products, such as the Sharp Expanded program, allow a DTI ratio up to 55% with compensating factors like a minimum 700 FICO score and maximum 80% LTV. Some programs may even allow up to 60% for occupying borrowers in specific co-borrower scenarios.
The typical maximum DTI ratio allowed for most Non-QM Full Doc, Alt Doc, and P&L programs is 50%. In 2024, DTI ratios above 43% were the main reason 26% of non-QM loans did not meet QM standards.
Traditional QM loans generally cap the borrower’s DTI ratio at 43% or less.
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